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Life Insurance Terms

Accidental death insurance: Life insurance that is paid only if the insured's death is as a result of an accident.

Accidental death and dismemberment insurance: Insurance that is paid if the insured dies, loses their sight or suffers the loss of one or more body parts as the result of an accident.

Agent: A sales and service representative of an insurance company.

Amount of insurance: The amount of insurance coverage issued.

Assignment: This is the legal transfer on one person's claim to an insurance policy to another person or entity, such as to a bank to qualify for a loan.

Beneficiary: Beneficiary is the person who will receive the death benefit (amount of money) of a life insurance policy when the insured person's dies. By naming a beneficiary, the money is protected from creditors. A beneficiary under the age of 18 needs to be represented by a legal individual guardian or a public official who represents minors generally. A policy owner can appoint someone to act as a trustee for a minor in the designation of a beneficiary.

Billing date: When the cost of insurance is paid monthly by pre-authorized chequing or credit card, the billing date is the day of the month that the billing deduction will occur.

Cash surrender value: Cash amount available to the owner of a life insurance policy when the policy is voluntarily terminated before the death of the life insured.

Canadian Life and Health Insurance Compensation Corporation (CompCorp): A federally regulated group of Canadian life and health insurance companies that insure all policy owners who are Canadian residents against financial failure of any members of the group. CompCorp will guarantee payment under covered policies up to certain specified limits for policy owners of that company.


Collateral insurance: Sometimes required by financial lending institutions to insure the repayment of a business loan in the event of death. Life insurance premiums for this coverage may be tax deductible.

Contingent owner: A person designated to become the new owner of a life insurance policy if the original owner dies before the policy ends.

Conversion right: Some term life insurance policies offer the opportunity to convert an existing policy to a permanent insurance policy within the specified time period, without providing evidence of insurability.

Cost of insurance: Also referred to as a premium, it is the amount you will pay for your life insurance policy. The cost of life insurance varies by age, sex, health, lifestyle, vocation and occupation. Health problems and dangerous hobbies - such as
 scuba diving, private flying, bungee jumping, parachuting, etc. - may increase the cost or may not allow for insurance coverage.

Coverage period: Length of time the insurance coverage is effective.

Coverage end date: Date when the insurance coverage expires.

Coverage start date: Date when the insurance coverage is effective.


Death benefit: Actual amount of money payable to the beneficiary. This amount may be decreased by loans or increased by additional benefits payable under specified conditions.

Evidence of insurability: A statement or proof of physical health and/or other information affecting a person's eligibility for insurance.

Face amount: Commonly used to refer to the amount of insurance purchased. Also called amount of insurance, coverage amount or sum insured.


Financial Needs Analysis: Process to review your current financial objectives and situation to help provide a guideline on the amount of insurance you require.

Grace period: Length of time (usually 30 days) after a premium payment is due and unpaid. During the grace period the policy (including all riders) remains in effect.

Guaranteed Issue Insurance: Insurance coverage guaranteed for individuals regardless of their health or medical history. Unlike many other types of life insurance, the customer is not required to answer any medical questions or take a medical exam. Insurance protection is guaranteed.

Incontestable clause: A clause in a life insurance policy that lets the life insurance company void the policy for up to two years from when the policy was issued if the life insured failed to disclose important information or misrepresented a material fact that would have prevented the policy from being issued. This limit doesn't apply in cases of fraud.


Insurance policy: The legal document issued by the insurer to the policy owner that outlines the conditions and terms of the insurance. Also called the policy.

Insured: This is the person whose life is being insured by the life insurance policy. Upon this person's death, a tax-free amount of money will be paid to that person's estate or a named beneficiary.

Insurer: The insurance company.

Intestate: This means dying without a will. When this occurs, provincial laws in the province where the death occurred determine how the assets will be distributed.

Joint first-to-die: A life insurance policy that covers two people and provides payment when the first person dies. Usually designed to pay estate taxes.

Joint last-to-die (also known as joint second-to-die policies): A life insurance policy that covers two people and provides payment when both people have died. Generally used to pay estate taxes to protect value for children where there might be substantial capital gains taxes due upon the death of the last parent.

Lapse: Refers to the termination of an insurance policy because the premium was not paid within the grace period. It is possible to re-instate the coverage with the same premium and benefits intact, but the life insured will have to re-qualify for this coverage again and pay for all unpaid premiums.

Last conversion date: The last date a policy can be converted.

Life insurance: Protection provides immediate tax-free cash payment upon death.


Lifetime coverage: An insurance policy that covers a person's entire lifetime.

Living benefit: An advance cash payment of part of the amount of insurance prior to the death of the insured person for certain conditions as defined in the policy. It provides financial assistance to the insured person while still living.

Living will: A will that specifically expresses the author's desire not to be kept alive on life support machines.

Medical report: This is a report on the insurance applicant's health. It is completed by a physician and is based on a physical examination and questioning of the proposed insured person.

Medical Information Bureau (MIB): The MIB is a non-profit association of life insurance companies. Its purpose is to detect and deter fraud by providing warnings - called alerts - to member companies. For example, if an insurance applicant advised one insurance company of a heart attack and then applied to another insurance company omitting this history, codes reported by the first insurance company indicating a heart attack would alert the second insurance company to the undisclosed history.

Mortgage life insurance: Life insurance that pays the outstanding mortgage balance directly to the lending institution that holds the mortgage.


Non-forfeiture options: Choices available in a life insurance policy to a policy owner if they discontinue premium payments on a policy that has accumulated a cash value. The choices are usually to take the cash value in cash, to apply the value to purchase "reduced paid-up insurance" or "extended term insurance," or to use the cash value as security for a loan against the policy to pay the premium or premiums due ("automatic premium loan").


Non-smoker rates: A discount on the cost of insurance recognizing that non-smokers have a better life expectancy than smokers. This discount applies for new applicants who have been non-smokers for at least 12 months before applying for coverage.

Owner: The person who owns the life insurance policy. Usually the same person as the insured but it could be someone else who has the permission of the insured to be the owner, like a spouse, a common-law-spouse, an offspring, a parent, a corporation or a business partner with insurable interest.

Paid-up insurance: A life insurance policy where the coverage is still effective but all required premiums have been paid.

Participating insurance: Life insurance where the policy owners share in surplus earnings attributed to that business. Premiums are based on an estimate of future earnings at a somewhat lower level and costs at a somewhat higher level than the company believes most likely will occur. Where a surplus occurs, a "policy dividend" is distributed to the policy owners who have participating policies.

Permanent life: A life insurance policy designed to provide permanent life insurance coverage until your death.

Policy loan: A loan made by a life insurance company to a policy owner on the security of the cash value of a policy.


Preferred rates: Some insurance companies offer a preferred (cheaper) cost of insurance for people who can demonstrate a better risk to the insurance company. Usually taken into consideration in conjunction with gender and smoking habits are other health-related factors, such as physical build, lifestyle, occupation, personal and family health history indicating longer life expectancy, can add up to significant cost savings to new life insurance applicants.


Premium: The cost of insurance or payment amount required by the insurance company to keep your policy in effect.

Rated policy: A policy issued to insure a person classified as having a greater-than-average risk to the insurance company, for example a person with impaired health or a hazardous occupation. The policy may be issued with special exclusions and/or a cost of insurance that is higher than a regular policy.

Reinstatement: Restoration of a lapsed life insurance policy. The life insurance company will require evidence of continuing good health and the payment of all past due premiums plus interest.


Replacement: Replacement is the process of purchasing a new individual life insurance policy to take the place of an existing individual life policy or part of the coverage of that policy. Consumers need to complete a Life Insurance Disclosure Form, to ensure you're fully aware and understand the pros and cons of both policies.

Riders: Additional types of insurance protection that can sometimes be added for a cost to a policy to protect against a variety of other losses.

Single life: Insurance policy that covers the life of one person.

Suicide clause: A clause in the life insurance policy which specifies that the policy amount will not be paid if the insured takes his or her own life within a specified period of time (usually two years) after the policy is issued.

Surrender charges: An amount of money deducted from some life insurance policies when the owner of a policy cancels the policy for its cash value.

Term life insurance: Life insurance coverage for a set time period where the insurance company pays a tax-free death benefit (payment) if the insured dies during that period of time. Many term policies are only offered for five, 10 or 20 year periods and can be renewed at the end of the policy, usually at a higher cost.

Underwriter/Underwriting: Underwriting is the process an insurance company uses to review an application for life insurance before accepting and issuing an insurance policy. The purpose of this review is to determine the potential degree of risk that a person represents to the life insurance company.


Universal life insurance: A life insurance policy where premiums (less expense charges) are credited to an investment account from which periodic charges for life insurance coverage are deducted and to which income is credited. Usually, the policy owner can vary the amount and timing of premium payments and change the amount of insurance.

Will: A legal document detailing how your assets are to be distributed upon your death.


 

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